Citicore Energy REIT offer period ends widely oversubscribed

While it will still be a few days before Citicore Energy REIT [CREIT 2.55 pre-IPO] hears from the Receiving Agent (the bank in charge of taking payments for the IPO, in this case, Professional Stock Transfer, Inc.) on whether the IPO has been officially oversubscribed, we can connect a few of the dots from the news and the CREIT Allocations Poll and arrive at our own prediction.

Not that our prediction changes anything, since the offer period is already closed and nobody can do anything until the shares are officially listed next week, but for those who enjoy all the pomp and drama that surrounds an IPO, this speculative exercise can be a bit of fun.

Now, as we’ve covered before, IPOs are technically split up into buckets of shares; there’s the institutional bucket (funds, government agencies, rich people, whales, etc), the broker bucket (each broker gets a sub-bucket of this bucket), and the PSE EASy bucket.

So when we talk about an IPO being “oversubscribed”, what we’re really saying is that there were more subscription requests than actual shares available for purchase. In finance, these buckets are called “tranches”, but that’s just a fancy way of saying the same thing. 

• Institutional tranche: We know from CREIT’s earlier clarification disclosure that the entire institutional tranche had already been “taken up”. CREIT walked back a statement indicating oversubscription since the official accounting of the sales results comes from the Receiving Agent at the end of the offer period, but it’s safe to assume that institutional demand exceeds supply when the tranche is sold out on the first day.
• PSE EASy tranche: As of this writing, PSE EASy hasn’t indicated the individual allocations, so we can’t know (yet) whether this tranche was oversubscribed. It’s not possible to tell ahead of time, either, since the system doesn’t provide any feedback on the progress of the PSE EASy tranche sale. Anyone with an account can request as many shares (within the individual limit) as they want. We’ll have to wait on this one.
• Broker tranche: This is where things get very interesting. Yesterday morning, I started to receive some messages from Barkadans about shockingly small allocations. As the day progressed, it seemed as though several broker sub-tranches had become significantly oversubscribed. And not just the usual suspect, COL Financial [COL 3.99 unch], but several others like BPI Trade, Abacus, and FMS. Barkadans weren’t just reporting partial allocations, but tiny partial allocations and “zero” allocations. Out of the 43 responses to my CREIT Allocation Poll, Barkadans had requested a total of 1.58 million shares, and had been allocated only 369,000 shares. That’s just 23.3%. By the numbers I collected, the worst brokerages to use for obtaining IPO allocations for CREIT were COL and BDO Securities, which allocated an average of just 9% of the requested shares. Abacus allocated about 24%, and FMS about 50%. I heard reports of several Barkadans receiving 100% allocations through AAA Securities and Timson, but those data points were not included in the polling data.
• So is it oversubscribed? I’m not a doctor, but this certainly looks like a case where subscription requests greatly exceeded the supply, across a wide variety of tranches. I don’t have any special knowledge of the institutional tranche, but it sounds like it sold out and will finish in an oversubscribed state. From what I’ve shown with the polling data, it would seem like all of the major brokerages sold out and will finish in an oversubscribed state. The only one we don’t really know about is PSE EASy, and given that individuals could request up to almost ?1,000,000 worth of shares each, I’m thinking that it’s probably going to finish oversubscribed as well.

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So what does it all mean? At the very least, it means that CREIT has run a successful IPO and has probably had an easy time selling all of the shares on offer. But, you say, didn’t Medilines Distributors [MEDIC 1.08 0.93%] also conduct a successful IPO, with the institutional tranche finishing in an oversubscribed state? Astute observation!

That is correct. MEDIC reported an oversubscribed institutional tranche, but no brokers (that I’m aware of) were forced to partial-fill allocations for lack of supply, and PSE EASy finished without selling out. H

ere, the anecdotal data seems to suggest a broader base of interest across a wider variety of investors, from the wealthy down to the rest of us “small local investors”. MEDIC didn’t demonstrate that interest from the retail crowd.

I think it’s safe to say that CREIT will be declared “oversubscribed”, and that there will be considerable post-IPO interest in the stock.

It has temporary downside protection, in the form of a stability fund, and long-term downside protection in the form of a stable dividend that is high relative to its REIT peers. Maybe that risk profile was more appealing to investors than we might have initially thought?

All that said, CREIT’s true test, the trial by IPO fire, is still to come. 

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